Many people require access to financing for their small business. Fortunately, there are various options available these days, and these cater to a wide range of needs and circumstances. However, you need to take the time to determine which of these options is right for you. One thing you need to look at is whether personal loans or business loans will be the right choice for your individual circumstances. Both are very popular options, and both come with pros and cons. So, before you make any commitment or sign on the dotted line, make sure you check to see whether you are better off with a personal or a business loan.

Using a Personal Loan for Your Small Business Needs

Personal loans can be used for a wide variety of purposes. One thing you can use them for is to fund your business needs. Many people opt for a personal loan because it is far easier to obtain than business loans and it generally takes far less time. The checks involved with this type of loan are very basic compared to a business loan, which is what helps to save time. It also increases the chances of being able to get the loan as long as your credit score is decent.

With these loans, your income details and credit score are the main things lenders will check. This means you don’t have to go through the hassle of obtaining a range of other documentation and information. You also don’t have to worry about securing the loan against any of your assets.

One thing you should bear in mind when it comes to personal loans is that the amount you can borrow is generally much lower than with business loans. In addition, the rate of interest charged tends to be significantly higher. Depending on the amount of money you need for your business, you may struggle to meet your financial goal with this type of loan because of the lower lending limits.

One other downside of personal loans is that they will not impact your business credit. This means you will not be able to use the loan to build up your business’ credit score and file, which could cause issues further down the line if you require further funding. You also need to remember that in the event of a problem whereby you cannot meet the repayments, it is your personal credit score that will be negatively affected.

Using a Business Loan for Small Business Financing

For many people, the ability to keep their personal and business finances completely separate is what sways them to opt for business loans. Of course, there are other valuable benefits such as the ability to borrow higher amounts of money and the lower rates of interest that come with these loans. In addition to this, if you find yourself in a position where you cannot meet the repayments, your own personal credit will not bear the brunt of it.

When you opt for business loans, you can start building a solid credit history for your business, which can prove invaluable in the future if you need to secure more funding. This will make it easier for you to get business financing in years to come as long as you maintain a good business credit score and do not default on loan repayments.

One of the key disadvantages you need to think about is the fact that it can take much longer to complete the process with a business loan. Most lenders require a wide range of documentation and will carry out detailed checks because of the increased risk that comes with this type of loan. In addition, you may have to secure the loan against an asset which can make the process even more time consuming and means you could be putting your home or other assets at risk in the event of a problem.

Checking Your Credit Score Before You Apply

One thing that lenders will check with both personal and business loans is your credit score and history. With this in mind, it is advisable to obtain a copy of your credit report before you make a decision or make an application for a loan. This will enable you to verify what your credit score is and then check the eligibility requirements amongst the lender you are considering.

In some cases, lenders will specify if you need to have a minimum credit score to be deemed eligible for one of their loans. If your score is not high enough, you can save yourself the time and hassle of making an application. In addition, you should remember that each time you are turned down for credit, it further impacts on your credit score and history. By checking your score beforehand, you can avoid more black marks on your credit file.